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News Article

Afore Savings Up Despite Tough Economic Conditions

By Peter Appleby | Thu, 06/18/2020 - 13:31

The balance of Mexico’s Afores rose in May as Mexicans increased their input into retirement funds despite the financial hardship following the COVID-19 pandemic, El Economista reports.

The voluntary savings funds, which are currently the focus of much political attention, rose to a record value level of MX$102.49 billion (some US$4.49 billion) in May, “a growth of 26 percent in real annual terms” despite the falling income up to two thirds of Mexican households experienced in May, as Mexico Business News (MBN) reported earlier this month.

In March, President Andrés Manuel López Obrador had requested that companies do not lay off workers during the health crisis, while in April, Mexico City Mayor Claudia Sheinbaum said she would sanction large companies that laid off staff during the crisis.

Despite the threat, Mexico City is among the top regions in terms of job losses in the country, with other tourism-reliant states like Quintana Roo also suffering.

Tecnológico de Monterrey economist Raymundo Tenorio told El Economista that the reasons for the increase in voluntary Afore payments may well be directly connected to the job losses Mexico has seen during the pandemic. Tenorio suggested that those who had been laid off with compensation packages had been able to funnel some of the sum into their Afores.

"There are people who received a severance payment from the company where they worked and decided to keep part of it for their current expenses and another part for voluntary savings because it is money that they can dispose of, depending on the contract they have with the Afore,” said the economist.

Belts have been tightened throughout the country as social distancing measures led to factories, offices, restaurants and stores closing their doors. Amid this suspension of activity and concerns around millions of people’s livelihoods, 56 percent less cash was withdrawn from ATMs in the country during May, MBN reported recently.

Over the last year, voluntary payments to Afores have continued to grow regardless, or perhaps partly because of, the economic situation in the country. According to El Economista, 1Q20 saw a 5 percent increase over the same period last year in the number of Afore accounts showing voluntary payments.

The largest Afore managers are Principal, PensionISSSTE and Profuturo with 2.23 million, 1.68 million and 1.33 million accounts, respectively. Though Principal manages the largest number of accounts, the average voluntary saving was MX$728 (US$32.06), far below the average voluntary saving of MX$8,534 (around US$376), reports El Economista.

Photo by:   Franz W., Pixabay
Peter Appleby Peter Appleby Journalist and Industry Analyst